Reusable Rockets and Orbiting Nano-Satellites: A Lesson for US Healthcare?

A spectacular story about scientific disruption comes to us from last week’s Economist magazine. The authors write that, over the past few months, a hundred tiny satellites have been launched in orbit at a fraction of the cost of a traditional satellite. Called nano-satellites, these 4-inch cubes are cheap, often constructed in simple workrooms with off-the-shelf cellphone parts. Some, smaller still, can be made for $25.

In April, as part of a mission by SpaceX, an American company, to resupply the ISS, a small mothership was placed in orbit carrying 104 “sprites”. Not much larger than a postage stamp, these contain all the basic elements of a satellite, such as a radio, aerials, a solar cell and instruments. Developed as part of a crowd-funded project called KickSat at Cornell University, each sprite cost just $25 in parts. (The Economist)

At the same time, the cost of launching these units has plummeted. Private companies such as SpaceX, Virgin Galactic and Generation Orbit are offering regular launches and the price for launching a nano-sat has now fallen to $30,000. Once in space, these satellites can take images, gather data, serve as antenna and do other handy things.

Think of how extraordinary this is. Satellites, which used to cost as much as a billion dollars to design, build and launch are being replaced by $50,000 metal boxes. These units are likely not as fancy as their bigger cousins, but the sheer number of nano-sats makes dramatically more frequent and diverse data gathering possible. For example, with so many units in the sky, a patch of land (the capacity of a parking lot for example) can be monitored in near-continuously as opposed to the infrequent “sweeps” that large units could do. Each satellite unit is less able, but sheer numbers lead to better data.

This isn’t just a story of improving science. Yes, arguably cameras and electronics are improved and can be produced in bulk at cheap prices– technology gets better every day. This story is, instead, one about large-scale disruption to a way of doing business, and it foreshadows, I think, what happens to medical science in a few years. We are seeing a new, skinny-platform business being created which decrease unit cost and exponentially increase value.

What happened in space science? In the Sputnik-to-2010 satellite business, a lack of options created a situation where there were few alternatives to the established way of doing things:

Satellites could only be built and launched by large governments or military-industrial contracting companies. Little competition was possible because the barrier to entry was too high.

There was a circular problem with costs: Each expensive satellite needed to be custom-developed at high cost. Each part then had to be overbuilt, to ensure 200% reliability for each component, lest one fail and destroy the massive $1 billion investment. This overbuilding led to yet more costs, and then more overbuilding.

Getting into space was subject to extensive regulation and government oversight.

Users of satellite information had to deal with limited service, offerings and types of data because production of satellites was expensive and closely held.

What caused the dawn of the nano-satellite? How did a sclerotic, regulated and bureaucratic process dominated by government and government contractors turn into a frontier for innovation? I’m no expert on space, but my hunch is that the following three developments contributed:

Multiple startup space companies felt they could do space launches for less than the big guys. These companies became experts at standardization through the development of lean platforms– the perfection of identical, reusable and scalable rockets, used in every launch for example. These skinny platforms and standardized processes dramatically drove down costs. Space-X founder Elon Musk is quoted: “If one can figure out how to effectively reuse rockets just like airplanes, the cost of access to space will be reduced by as much as a factor of a hundred”.

The satellites borrowed technology from adjacent industries, such as the smartphone industry

A “consumerization” of space occurred, changing the market from one where only major industry and government could play into one where any small group or university could find $30k and participate. There was freedom to play and innovate because the costs were so low.

Now, let’s consider the parallels to healthcare for a minute. As with the space companies of old, US healthcare is 1) suffocatinglyregulated 2) suffers from huge infrastructure costs and a lack of standardization and is 3) demonstrably resistant to innovation.

Most of these problems stem from the massive “platform” around healthcare that I have discussed before. The infrastructure around the caregiver (hospital towers, beds, proton accelerators…) need to be supported and this enormous costs need to be passed to the consumer in the form of charges. Enormous regulation accelerates this problem: restrictions from payers on where patients can be treated (and how)– and from hospital accreditation firms, such as the Joint Commission which, while well intentioned, now proffer of pages of “standards” involving everything from the size of signs to whether nurses can have coffee at their desks.

We have a situation where the traditional US healthcare system can not “flex” or be imaginative in how it delivers service because the “platform” has become too cumbersome, and its service offerings too costly to fail.

What does the future hold? I predict a skinny chassis, collapsing prices and nimble competitors directly competing with the legacy players for market share. Here are a few possibilities:

Inexpensive medical imaging using older but still very good equipment delivered at a discount.

An explosion of innovation in the home care, medical monitoring and tele health fields driven by innovators from the IT and communications sectors with adapted consumer grade equipment– leading to a whole range of new possibilities for care, similar to the nano-sats.

An explosion of new ideas once the cost of failure drops. Innovative care is hard when errors can cost millions.

More clever ways of getting care out of the hospital: not just because overnight stays are uncomfortable and inconvenient for many types of care, but because the vertical, hospital-centric chassis has become the NASA tar-pit of healthcare: regulated, expensive, sclerotic and inflexible with massive fixed costs which need to be amortized with every patient transaction.

2 Comments

Good question Lee- I have high hopes for the new VA chief, the former CEO of Proctor and Gamble. Certainly we can expect more of a consumer focus.

I can see a number of possible directions for the VA. They will need to decide, first thing, whether to attempt to offer the full range of services in-house versus making more aggressive build/buy decisions with outside vendors. That is, do they remain “vertical” or do they focus on niche service areas such as prosthetics and trauma while purchasing a range of other services (much like a general contractor) from the private sector. Will be interesting to observe.

“Managing capitation can be deceiving. Like flying an airliner, the gauges, levers and controls can make it seem like high-stakes science. It is, partly. But as with all things healthcare this is ultimately about humans, their needs and their behaviors. You eventually learn that managing the payment model is as much an art as is the actual practice of medicine”.